A new legislative session has brought speculation about the fate of Texas’s public school funding formula. Districts have long argued the complex formula fails to equitably fund public schools and because of it, more than 600 districts—including Fort Bend ISD—sued the state in 2011.
This is the first year FBISD was considered property wealthy based on the state’s rules for wealth equalization—the system meant to equalize funding among districts. FBISD opposes the system for what it considers a loss of local funding.
“We entered into Chapter 41 status in 2015-16, but because of the [property tax] homestead [exemption] that got passed, it decreased our value,” said Dina Edgar, FBISD executive director of finance. “We’re kind of teetering.”
Chapter 41 refers to the section of the Texas Education Code that outlines recapture.
While the Texas Supreme Court said in May that the funding formula was in need of reform, justices stopped short of calling it unconstitutional. This ruling meant the Legislature is not required to pass any changes to the formula, but a House budget proposal this session is promising increased education funding in exchange for a lessened reliance on recapture.
“I think we have the opportunity to do this without the wave or threat of a judicial decision, and I think we need to take advantage of it,” said Rep. John Zerwas, R-Richmond.
Roots of recapture
Recapture, colloquially known as the "Robin Hood" plan, was first created in 1993 as a way to divert tax revenue from property wealthy school districts to property poor districts for the goal of greater equity. Recapture came from the Texas Supreme Court ruling in Edgewood Independent School District et al. v. Kirby et al. in 1989, when the court found the existing funding system to be
At the time, 33 school districts were subject to wealth equalization and paid a total amount of $130 million, according to the Texas School Coalition, a group that represents districts with Chapter 41 status. In 2016-17, 379 school districts are considered property wealthy and are expected to send more than $2 billion in total to the state, according to the Texas Education Agency.
Districts must only meet one of three levels of wealth equalization to qualify as property wealthy, and FBISD meets the criteria for Level 3: the net taxable value of property within the district per weighted daily average attendance is greater than $319,500, according to FBISD and the TEA.
La Porte, Sheldon and Spring Branch ISDs were the only school districts in the Greater Houston area that paid recapture in the 2015-16 school year. Sheldon ISD, which had 8,477 students that year, paid $1.8 million and La Porte ISD, with 7,753 students, paid $24.5 million.
Spring Branch ISD, a district of 35,301 students that year, paid $28.5 million, according to TEA reports. This year, the district is anticipating paying $68.3 million, according to preliminary recapture reports.
“We feel it is misleading for local taxpayers to write checks to our local school district when the majority of the funds attributable to value growth actually benefit the bottom line of the state’s budget,” SBISD Communications Director Steven Brunsman said in a statement. “Next year, SBISD is forecast to pay $91 million in recapture. That’s nearly 22 percent of locally generated revenue, and it’s unsustainable.”
FBISD has Chapter 41 status, but it is exempt from paying recapture because of a caveat known as “golden pennies.” The pennies are the first 6 cents of a school district’s maintenance and operations, or M&O, tax rate that exceeds the $1 compressed tax rate established by the state.
The compressed tax rate calculates how much revenue a school district would have lost after Texas approved property tax relief legislation in 2006. Those six pennies are not subject to capture.
Although FBISD’s M&O tax rate has been $1.04 per $100 valuation since the 2007-08 school year, it can raise its M&O tax rate up to $1.06 and still not pay recapture to the state. The district predicts that given the rate of WADA and property tax appraisal increases in the county, FBISD will need to start paying recapture in the 2027-28 school year.
“There is no recapture on local tax effort in the golden pennies so a very [wealthy] district could get even more than the entitlement and not have to pay recapture,” TEA spokesperson Lauren Callahan said in an email.
FBISD would need an election to raise its M&O tax rate beyond $1.04 per $100 valuation. Edgar said that if it did go to $1.07, the district would have to pay $875,000 in recapture but would also generate an additional $16.4 million for its general fund.
On Jan. 23, Edgar and FBISD Chief Financial Officer Steven Bassett recommended bringing the M&O tax rate up to $1.06 by swapping 2 cents from the interest and sinking, or I&S, tax rate in the 2017-18 budget. Edgar and Bassett said it would add $14 million more to the district’s general fund, but it would require an election.
“We wouldn’t recommend going to a $1.07 [per $100 valuation] until things change,” Bassett said.
Despite Comptroller Glen Hagar’s prediction of a $2.86 billion shortfall in the 2018-19 biennium compared to the previous biennium, Bassett and Edgar were more optimistic for FBISD’s prospects in 2017-18. Edgar said the district was no longer expecting a nearly $9 million deficit, as property values in the district have grown more than expected since last year.
She said the oil and gas downturn’s effects were not as significant as the district initially thought. Enrollment growth was also higher than anticipated, which helps with revenue.
“I talked to Katy ISD’s CFO, our appraiser, and we’re just not seeing the slowdown,” she said.
About 75 percent of property value growth from last year was generated by existing property and about 25 percent came from new construction in the district, Edgar said. Bassett estimated that about 200 bills related to school finance had been filed for the 85th legislative session but the district is uncertain what benefit, if any, these would provide.
The House-proposed 2018-19 biennium budget includes an additional $1.5 billion of school funding, or a 3.5 percent increase from the last biennium. House Speaker Joe Straus, R-San Antonio, said the increase is contingent upon a reduction in recapture.
“Our school finance system may meet the legal definition of constitutional. But parents and taxpayers know something different,” Straus said on the session’s opening day. “They know that the system is broken … And they know that it’s our job to fix it.”
Chandra Villanueva, senior policy analyst for the Austin-based Center for Public Policy Priorities, was skeptical recapture would be reduced with a funding increase that size. She said the bill does not adequately raise a district's basic allotment, which is the starting point for campuses’ funding for things, such as regular, special, and career and technical education.
All districts receive a basic allotment, but only property poor districts receive money from recapture payments. In the last legislative session, Villanueva said a $1.3 billion increase was needed to raise the basic allotment for school districts by just $100.
“The easiest way to meet those stipulations is to increase the state’s basic allotment,” she said of reducing the need for recapture. “When that allotment goes up, recapture goes down because schools are able to keep more.”